Argentina seeks to stabilize banks

$250-a-week limit put on account cash withdrawals

BUENOS AIRES — Banks overflowed with thousands of Argentines on Monday after the government partially froze bank accounts to stem a nationwide run on banks and avert financial collapse.

Economy Minister Domingo Cavallo announced measures over the weekend limiting cash withdrawals to $250 per week and restricting the transfer of funds abroad to $1,000 a month in an effort to keep nervous savers from bleeding the banking system dry, which would likely sink Latin America's No. 3 economy and rock already weak global markets.

Beyond that, Argentines will have to make payments using bank debit cards, credit cards or checks.

Banks filled for hours with disgruntled and confused clients. Some rushed in at closing time, like Juan Manuel Dedionigis, 26, who pounded noisily on the plate glass windows of a bank branch trying to get some attention.

"These new restrictions don't make any sense at all," he complained. "With the little cash they'll let us have, I guess I can get by for 10, maybe 15 days."

Bank managers and clerks worked extended hours, as they also tried to make sense of the new measures, which the government said would remain in place for 90 days, while it tried to complete a massive restructuring of its public debt.

In some areas, however, all appeared normal--a stark contrast to Friday, when savers demanded banks give back savings as anxious crowds gathered outside local branches. On Friday, Argentines pulled some $700 million from the banks, worried that months of economic crisis were pushing their country to the brink of a chaotic devaluation.

"Everything is normal, very quiet," said one bank teller.

The Argentine Banking Association also said operations were normal Monday.

Hoping to soothe an uneasy populace, President Fernando de la Rua appealed for "good faith and understanding" from Argentines, saying the measures "were taken to protect us all from uncertainty."

"Your savings and deposits are safe," he said.

Both he and Cavallo have slammed speculators and "vulture funds" for trying to sink Argentina.

But the decision to restrict cash brought criticism from many economists, political and union leaders, who argued the restrictions on cash would likely deepen Argentina's protracted recession, now in its 42nd month. Argentina is also grappling with a $132 billion debt crisis.

"We've closed off our borders to money, coming in and going out, and while that may save banks it will also halt foreign investment and make the recession worse," said Eduardo Peressini, a trader for Martorell brokerage.

Other economists said the measures would further discourage consumer spending--the main motor to the $285 billion economy--and worsen a slump now in its fourth year.

Local banks, which have seen total deposits fall 17 percent so far this year, largely welcomed the measures, and many ordinary Argentines shrugged off the restrictions as irrelevant to them. With the average pay in the nation of 37 million at roughly $600 a month, most Argentines would be unaffected by the limits on withdrawals.

The government's response to halt the banks' runs drew criticism from the international credit agency Moody's, which has downgraded Argentina's creditworthiness five times this year.

In a statement, Moody's blamed Argentina's economic problems on its currency peg to the dollar and said the government's latest measures would do little to insulate the economy from further turmoil. Many economists say the peso is overvalued and has hurt Argentina's ability to stay competitive in world markets.

Some analysts, however, say a devaluation of the peso would wreak havoc in a country where more than 80 percent of all debts and contracts are in dollars.